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Archive for the Profitability Tips Category

Figuring Out the Real Value of a Compliance Project

How do you measure the value of a compliance service that you received…or provided?
A story recently came my way in which a business owner received professional services required to help his business be in compliance with federal and state laws.
Specialty knowledge was required to accurately complete the right forms.
He engaged the services of an expert who got the job done…but didn’t want to pay the invoice in full because it just didn’t seem worth the price tag.
As a buyer, have you ever felt like that?
As a service provider, has that ever happened to you?
Let’s hone in on why the business owner did not perceive value for the service. In this case, it was because there just weren’t that many documents produced.
I can’t blame the business owner for using what he knows – and a quantitative metric, at that – in order to assess value.
However, this needs to be a lesson for all of us, those who engage the services of others and those who provide services.
Notice what metric you’re using to assess value. And use the right metric.
“Number of pages produced” is an inaccurate and unhelpful metric.
Ask yourself:
* What isn’t possible without said documents
* Comparable pricing with other service providers for the same level of speed, accuracy, and other factors in the relationship
* Opportunity cost of his time if he were to do this himself
* Length of time that it takes anyone to be able to build the expertise to handle this
* Making sure the RIGHT documents get prepared
* The fallout from the documents being prepared incorrectly or late
The Emancipation Proclamation is only 5 pages long.
The Declaration of Independence is only 1 page long.
But “number of pages” is what he knows to use as a measurement of value in the face of nothing better.
Service providers: Teach your clients how to measure value, and you’ll empower them for life. And thereby get them present to the amazing value they have access to by working with you.
Business leaders: Beware of illusion of value that comes when you measure something that is NOT correlated with actual value. Get clear with yourself and with your service provider about the real indicators of value before your engagement begins, and you’ll both be delighted and better off after your project is complete.

Giving a Workshop? How to Short Yourself in One Easy Step

 

Pricing your workshop by using your materials cost as a point of comparison is an approach that is likely to leave money on the table and keep yet another entrepreneur playing small-time by default, all for lack of design.
Long ago, I made the mistake of using my costs as a determining factor for my price point. I practically gave away my product because my materials cost was tiny…but my expertise was exceptional.
Consider the following:
Charge what the market will bear.
See what other people in the area have charged for similar workshops. If it’s more than you were contemplating, yippee! Charge market rates if your audience is the same and your value proposition is the same.
Be aware of who you’re attracting to your workshop and what’s in it for them so you can decide who you want to attract and put together language accordingly.
When you attract people to your workshop who stand to make a financial gain (make or save money) by coming to your workshop, this can drive up the price.
When you attract people to your workshop who stand to save time by coming, then if the opportunity cost of their time is worth anything, this can drive up the price.
Your opportunity here is to decide who your audience is and then tailor your workshop message to help them realize the real value that’s on offer.
Take into account the relationship of risk to price.
The lower the risk for the attendee, the higher the price can be. There are many ways to lower risk, such as guarantees. If you want a list, I can start a list.
Take into account the social value of the event and the relationship to price.
Price something at $10 and you’ll attract people who are willing to pay $10. Nothing wrong with that. But you’ll have to generate a lot more volume to cover your house nut, much less create a real profit. If you’re a volume-generating machine and you want to make the results of a $10 workshop available to many people, go for it.
However, don’t believe that this is your only option.
Price the same thing at $5,000 (and have the value proposition aligned with that) and you’ll attract people who want to be in the same room as other people who can pay $5,000 for a workshop.
My point is that you can design how this goes and not assume that it has to be a certain way.

The Pointillism Maserati

 

Every action that we take either enriches us or impoverishes us.

When we have perfect clarity about which is which, we’ll have the keys to the vault.

Expenses

I was driving through downtown Naples on a beautiful October Saturday. You have probably heard – and rightly so – what a beautiful city Naples is, and certainly there is a lot of wealth here, in the city itself and on lovely Marco Island.

On U.S. 41, the main north-south road connecting the main cities in the area, there are plenty of luxury car dealerships. I don’t mean the Honda Acura. I mean Maserati, Aston Martin, Tesla.

That’s fine.

But these are, for most people, expenses. Most people will not leverage a vehicle into a (spoiler alert!) ROI.

In the heart of downtown Naples is the difference between spending 6 figures to enrich your life or spending 6 figures to impoverish it. Just where U.S. 41 turns to the southeast is a cluster of establishments that spells out that difference in 2 words:

art galleries.

Art appreciates in value. Most vehicles do not. In a given transaction, one type of disbursement is an expense whereas one is an investment.

But while the dealerships are all up and down U.S. 41, you have to go to one special place for those art galleries.

What are the questions you’re asking yourself right now?

 

Is It Profitable to Blog?

One of the many online marketing options available for businesses is blogging. A blog can act as a company’s daily newspaper, letting customers and followers know the latest news about what’s happening. It can also be a wonderful revenue-generator.

As long as the content of your blog is relevant to your readers, you can post on a wide variety of topics. You might want to let clients know about an upcoming sale, a new employee, or a tip related to a product or service of yours.

Some businesses make a separate revenue stream out of blogging. The most profitable blog today is the Huffington Post. Revenue from blogging can be earned in many ways:

  • By selling ad space to people who want to get their products in front of people who read your blog
  • From sponsors
  • By holding events your readers attend
  • From commissions from the sale of products on your site
  • By creating products and services such as membership sites which allow paid access to your resources

Making money from blogging through one of these revenue streams takes work. Not only do you have to find or create content, you’ll need to attract readers too.

You can also simply use your blog to generate a following for your products and services. The right content can improve customer service, educate customers on your products which leads to better client retention, or inform them of the benefits of your products during your sales cycle.

If you’re not a writer, there are plenty of freelance writers available that you can hire to create your blog posts.  You can also curate articles, meaning you can find existing articles and ask the author if you can re-publish theirs.

Creating a blog is easy with software like WordPress or apps like Blogger.com WordPress.com, and Wix.com, and all of these solutions are free.

Think about how a blog can impact your business for the better.

Do You Have Past Due Accounts?

If you perform a service or ship a product before you get paid, then you likely have a balance in your Accounts Receivable account. If customers pay when their invoice is due, all is right with the world. If they don’t, then your cash flow slows down and your bank balance is not as high as it should be. Here are some tips, preventive and supportive, to help you keep your accounts receivable current.

Granting Credit

When you deliver your service or product before your client pays you, you are in effect their “bank,” granting them credit. Not everyone deserves to be granted credit. Consider running credit checks, especially if you are billing large amounts of money for your sized business.

You may also want to ask for a retainer or deposit prior to starting work or shipping your products. This will smooth your cash flow and reduce your credit risk.

Offer Multiple Payment Options

When a customer is ready to pay their bill, make it easy on them by offering multiple payment options. Perhaps they will pay faster if you take payment by credit cards. Many people have extra money sitting in their PayPal accounts, so that is another payment option.  Apple Pay and Android Pay are relatively recent options to consider adding.

You may also want to revisit the credit cards you offer: MasterCard, Visa, and American Express are universal, but many places also take Discover and Diners Club. If you are doing international business, consider JCB (Japan), China UnionPay, and RuPay (India).

Collection Process

Once an unpaid invoice has reached its 90-day mark, the chances of collecting it are about 50 percent. This means that you will need to put some aggressive collection processes in place prior to the 90-day mark.

If the invoice is due in 30 days, start at the 35- to 40-day mark with a friendly reminder. At 60 days, your customer needs a strong reminder and perhaps a phone call. At 75 days, they need to know what consequences there will be for not paying. Will you report the customer debt to credit agencies? Will you turn the account over to a collection agency?

At 90 days, it’s probably a good idea to make one final collection effort and then turn it over to a collection agency. It might sound too soon, but the odds of collecting something much older go down significantly as time passes.

At any rate, create your own process, and automate it as much as possible. The main thing is to stay on top of it.

Past Due Accounts

From how you first engage with your clients to the last steps in the collection process, there are many cost-effective techniques to avoid past due accounts and the unpleasantness that goes with them for both parties. If this is an issue in your business, try these ideas above and reach out if you’d like our help.

 

Eight Ways to Increase Your Profits

Increasing your profits might sound like it’s an unattainable dream just out of your reach. But there are a finite number of ways that profits can be increased. Once you understand what they are, you’ll have clarity on how to best reach your goals.

There are two primary ways to increase profits:

  • Raise revenue
  • Lower expenses

That’s not particularly enlightening or instructional, is it? Let’s look at the four ways you can increase revenues and the four ways you can reduce expenses to get clearer on what actions we can take.

Four Ways to Increase Revenue

1. Raise prices

The easiest way to raise revenue is to simply raise prices. However, this is not foolproof and assumes you’ll be able to maintain the volume of sales you’ve achieved in the past.

This method is also limited by market demand, what your customers are willing to pay.

2. Add new customers

Adding new customers is what most entrepreneurs think about when raising revenue. Increasing your marketing or adding new marketing methods is typically the way to add new customers.

Another related option is to work hard to keep the customers you already have. You can also potentially contact the customers you lost and ask them to come back.

3. Introduce new products or services

For some companies, your products and services are changing every year. For others, not so much. To increase revenue, consider adding new products or services that will bring in an additional revenue stream that you didn’t have before.

Even if your products are changing every year, you can consider adding something completely different that your customer base would love.  For example, a hair salon could add a nail desk, a clothing store could add handbags or shoes, a grocery store could add a coffee bar, a restaurant could add catering, a landscaper could add hardscaping, and so on.

4. Acquisition

The final way a business can increase revenue is to acquire another business in a merger or acquisition.

Four Ways to Reduce Expenses

1. Negotiate for a better deal with vendors

If you’ve been working with a vendor for a while, you may be able to re-negotiate your contract with them. This is especially common with telecom companies. Call you phone provider and ask them for the latest deal. They always favor new customers over long term customers, but they don’t want to lose customers either. Just calling them usually yields a better price than what you are paying now.

2. Change vendors

If a vendor has gotten too expensive, it might be time to look for a new vendor. Health care insurance seems to be in this category. Often, changing providers will lower your costs.

3. Cut headcount

If there is not enough work to support your employees or not enough cash flow to pay them, then it might be time for a layoff or restructuring. You might also consider outsourcing a function that you previously did in-house.

4. Cut the expense or reduce services

It might be your business no longer needs to spend money on an expense. Perhaps this expense has been automated. In this case, it’s an easy decision to cut the expense out entirely.

Those are the eight ways to increase profits. Which one makes the most sense in your business? Create a plan around these eight ideas to boost your profit in 2017, and let us know if we can help.

Start the New Year with a 2017 Profit Plan

Are you ready for 2017 to be even better than 2016?  If so, take a few minutes to reflect on the questions below and take action to set your 2017 profit plan.

Question 1:  What were the three best business things about 2016?

No need to re-invent the wheel.  If you knocked it out of the park in 2016, can you wash, rinse and repeat these tasks in 2017?

If you’re having trouble thinking of three things, here are some hints:

  • What apps saved you time and money?
  • Did you make some good hires?
  • Did you let go of a bad hire or two?
  • Was there a marketing campaign that really worked?
  • Were there any events you went to that generated great ideas?
  • Did you add or remove products and/or services?
  • Did you buy new equipment or open a new location?

Summarize the three best things that happened in your business for 2016 and think about how you can repeat them to enhance your 2017.

Question 2:  What were the three worst business things about 2016?

While we don’t want to dwell too much on our failures, we do want to learn from them.  Think about the three things that are causing you to lose time, money or gain stress, and decide if you can make changes for 2017.

Question 3:  What vision do you have for your business in 2017?

At the end of 2017, what has to have happened in order for you to have a successful year?   Think in terms of metrics as well as intangibles, such as peace of mind and happiness.

Once you know your destination, the fun is in creating a roadmap to get you there.

Your 2017 Profit Plan

If your vision includes financial goals, then creating a profit plan is one way to measure your progress throughout 2017.  Start by deciding how much profit you want to make in 2017.  From there, you can compute your revenue goal and make a plan.  Then you can add expenses to complete the budget.  Here’s an example:

Let’s say you want to make $50,000 in profit for 2017.  You can do that in a number of ways:

  1. Generate $500,000 in revenue and $450,000 in expenses.
  2. Generate $2 million in revenue and $1,950,000 in expenses.
  3. Generate $150,000 in revenue and $100,000 in expenses.
  4. And so forth.

From your profit number, you can create a revenue plan.  A revenue should include how many items you need to sell.  Like this:

  No. of units Price Revenue
Widget A 3,000 $200 $600,000
Part B 100 $2,000 $200,000
Service C 700 $1,000 $700,000
Total     $1,500,000

Once you have your revenue plan, you can fill in your estimated expenses.

You might be thinking that this sure sounds a lot like making a budget.  And it is.  But it’s far more fun to work on something called a profit plan than it is a budget.  And if you need us to do the number-crunching part, please feel free to reach out any time.

Here’s to a very happy and prosperous 2017.

5 Metrics to Gauge Your Business Performance

Sometimes, the most telling numbers in your business are not necessarily on the monthly reports. Although the foundation of your finances revolves around the balance sheet and income statement, there are a few numbers that, when known and tracked, can make a huge impact on your business decision-making. Here are five:

1. Revenue per employee.

Even if you are a solo business owner, revenue per employee can be an interesting number. It’s easy to compute: take total revenue for the year and divide by the number of employees you had during the year. You may need to average the number in case you had turnover or adjust it for part-time employees.

Whether your number is good or bad depends on the industry you’re in as well as a host of other factors. Compare it to prior years; is the number increasing (good) or decreasing (not so good)? If it’s decreasing you might want to investigate why. It could be you have many new employees who need training so that your productivity has slipped. It could also be that revenue has declined.

2. Customer acquisition cost.

If you’ve ever watched Shark Tank®, you know that CAC is one of the most important numbers for investors. This is how much it costs you in marketing and selling costs to acquire a new client. Factors such as annual revenue, or even lifetime value of a client will affect how low or high you can allow this number to go.

3. Cash burn rate.

How fast do you go through cash? The cash burn rate calculates this for you. Compute the difference between your starting and ending cash balances and divide that number by the number of months it covers. The result is a monthly value. This is especially important for startups that have not shown a profit yet so they can figure out how much cash they need to borrow or raise to fund their venture.

4. Revenue per client.

Revenue per client is a good measure to compare from year to year. Are clients spending more or less with you, on average, than last year?

5. Customer retention.

If you are curious as to how many customers return year after year, you can compute your client retention percentage. Make a list of all the customers who paid you money last year. Then create a list of customers who have paid you this year. (You’ll need to two full years to be accurate). Merge the two lists. Count how many customers you had in the first year. Then count the customers who paid you money in both years. The formula is:

Number of customer who paid you in both years / Number of customers in the first or prior year * 100 = Customer retention rate as a percentage

New customers don’t count in this formula. You’ll be able to see what percentage of customers came back in a year. You can also modify this formula for any length of time you wish to measure.

Try any of these five metrics so you’ll gain richer financial information about your business’s performance. And as always, if we can help, be sure to reach out.

Your Daily Numbers

Some numbers need reviewing on a daily basis, and one example of this is cash.  When cash is coming in from a number of places, it’s great to have a daily summary of what was collected.

It’s also great to make sure all the collections hit your bank account so you can feel confident that no errors were made along the way.  A daily cash reconciliation report will serve both needs very well.

A daily cash report will vary depending on the type of business you have, but it will look like a combination of a bank reconciliation and a sales report wrapped into one.

If you are managing your cash closely from day to day, then this report will help you stay sane.  You’ll need two very brief spreadsheets to get started.  The first one below is your daily sales from all sources.  Your accounting system may be able to generate this.

Today’s Sales
Cash $300.00
Checks $600.00
Total Bank Deposit $900.00
Mastercard Visa $400.00
American Express $200.00
Total Credit Card Due $600.00
PayPal $100.00

If your accounting system is up to date, all you’ll need to do is pull the cash balance and adjust for today’s activity.  The following day, you can double check your accuracy and adjust accordingly using the last two rows.

Daily Cash Report
Book Cash Balance $5,000.00
Deposit from Today’s Sales $900.00
Merchant Deposit $600.00
Less Checks Written Today ($1,200.00)
$5,300.00
Expected Bank Balance Tomorrow $8,300.00
Actual Bank Balance $8,300.00
Explain any differences

If your accounting system is not updated in real time, you’ll need to start with the bank balance and correct it for uncleared transactions as well as list today’s activity.

Daily Cash Report
Bank Balance $5,000.00
Deposit from Today’s Sales $900.00
Merchant Deposit $600.00
Less Checks Written Today ($1,200.00)
$5,300.00
Checks Still Outstanding ($3,000.00)
Deposit from A/R Paid $5,000.00
Expected Bank Balance Tomorrow $8,300.00

 

Using these formats, you can easily extend them to cover the entire week.  This way, you’ll know what your cash balance will be from day to day.

If you see the value of this report for your business and would like help creating it, please reach out.

Influencing Your Word-of-Mouth Results

Just about every business relies on “word-of-mouth” marketing to get the vast majority of its clients. If this is true for your business, then it just makes sense to figure out how to boost your referrals from all sources. Referrals are almost always easier to sell and they keep your marketing costs low. But how can you do that?

The first step is to make sure that you know who your best current referral sources are. If you’re not already asking the question to new clients “How did you find out about us?” then I’d recommend you implement that right away.

If you do know the answer to that question for each customer, then you can make a list of your referral sources. Take a look at the list, and see what these referral sources have in common. Here are some questions to ask:

  • Are they all customers?
  • Do they all have a profession in common? For example, are they all lawyers, massage therapists, plumbers, or pediatricians?
  • Have you properly thanked each of these individuals? If not, you can send out a thank you card or take them to lunch with no other agenda.

The last question to ask yourself is “where can you find more of the same type of people that are referring you?” If you discovered that you get a lot of business from dog groomers, then you may want to consider visiting every grooming salon in your zip code. You may also want to present a speech to a dog groomers Meetup group that you find.

You really can be proactive about your referrals so that business comes to you more easily. Try these tips to boost your referral sources in your business.


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